Tuesday, November 9, 2010

Whats this Gujju got to do with it?

Dont get me wrong I respect Bhagwati, I guess they dont always give Padma bhushan's to any Tom Dick or Harry or rather ( Rajiv, Suryanarayanum or Kapoor!), but something's he said just made me cringe.

Firstly, on a lighter note, I know economics is a soft science but the supposition that Kerry watched BBC, eats Brie and drinks French wine is just ridiculous. Im not saying he doesnt, but Kerry is just the wrong kind of example to use, he did marry the heir to Heinz! Also, am I the only one who thinks its a little funny that an old Indian dude was referencing Tina Turner! Ha! I must give him props for trying to be funny, humor is just one of those things that was mutated out Indian genes.

To make my point clear about old Indian men referencing Tina Turner heres a picture of Bhagwati!-

Then again you may not find this funny. Blame it on my Indian genes!

However, I must disagree with Bhagwati on the child labor issue. He assumes that all parents know how to make right decisions. 42% of my country lives in poverty. Most of this 42% is also illiterate (the literacy rate in India is 68%). Also, there is a huge gender disparity when it comes to the literacy rate in India, only 54% of women are literate! Grameen bank data has shown that money earned by women directly impacts the lives of her children, therefore they only give loans to women. Therefore, I will assume that women in India are more in touch with their children and are more involved in their successes especially in the field of education.

Even if all the illiterate women in India are making more money because of the effects if globalization (Im not asserting globalization is bad, it is benefiting even the poorest, however indirectly), it cannot be assumed that the illiterate woman will understand that if she sends her child to school, after a span of 18 -25 years, their family will be in a better condition. This is why they send their children to work, instant gratification, more food in their stomachs that night versus a night two decades from now. Same reason someone like me might spend $1000 on a credit card on Brian Atwood's (I have not done this yet!).

Also it cannot be assumed that the illiterate women have any concepts of financial literacy, of savings with a bank versus a moneylender, most dont. Many dont understand the benefits of saving money in a bank, they dont see a future where they can save say a $3000 they might need to send their child to college. Therefore, Bhagwati's argument is false, it cannot be assumed that just because a parent is earning more they will send their child to school. It doesnt always happen in reality.

Also, the only reason India's literary rate is growing at an unprecedented 12% per year is because of solid efforts by the government as seen in the states of Kerela and Himachal Pradesh. Adam Smith's invisible hand obviously failed to see these invisible people.

6 comments:

Not that I'm disagreeing with you, but you have to admit the implications of the idea that a government official is more qualified to make decisions on behalf of someone else is an intuitively cringe-inducing thought. If we want to deprive an individual of the freedom to make their own life choices we'd have to make some pretty heroic assumptions about the benevolence, and information available to that central planner.

I not sure Bhagwati assumes that people will always make the best decisions. Just that individuals themselves probably have better knowledge of their unique time preference and immediate material needs than a central planner imposing policy from an office hundreds of miles away.

Richard... Im not suggesting that a central planner is always the best option. I think education is the best option, and in proven cases such as Kerela and Himachal Pradesh govt. provided education is working.The literacy rate in Kerela is 94%, campared to the 68% avergae of India! I think what people need is information to make the best choice for themselves, but they will not be able to do so if they do not learn to read, write and think for themselves

I agree with Sitara that education is the best option. The lack of compulsory education (in addition to lack of asteroid defense) is one of the main reasons that I can't fully get behind a libertarian society. It sounds like I'm being sarcastic, but education should be mandatory and continuous. (It should also require that everyone study the Calculus series all the way out to Differential Equations...)

Education is typically a decision made by the parents for their children. If the government has a role at all, it is to protect the helpless and prevent unnecessary harm. Since the child isn't capable of making an informed decision based on his own time preference, the government making the decision in the child's interest is better than the parent making the decision in his own. period.

When the market fails to illicit the best response (as defined by the known actual future outcome of A being greater than future value of current state B even though B will be chosen given present value bias), then an outside agent can make a better decision. Screw all this time preference BS, only actual realized utility matters. Retirement savings account, education, protection of property rights, mitigated damages, road systems, etc, are all examples of where individual discounted self-interest would create market failures in the absence of an disinterested third party. That's my opinion and you can't change it.